Posts Tagged ‘buyer behaviour’

How I Use My Phone – Extracting consumer insights from purchasing patterns

The Mobile Experience Center of the Co-Creation Hub in Lagos, Nigeria conducted a survey series – How I Use My Phone – where they looked at phone use among university students, white collar professionals, blue collar workers and market traders*.  I’ve screen-capped the section on airtime purchase patterns from each infographic to analyze a little further.

*Before we proceed, an observation that the survey on traders is the smallest sample (around 50 people) and only one market, while the rest of the segments have a population sample in the thousands. Still, theirs are the most interesting patterns and to me, the most significant. I’m also hampered by the fact that each infographic is unique and every survey is not the same i.e. some show salary or income, some don’t etc – I’m mentioning this upfront and won’t refer to these discrepancies further on.


Nigerian University Students

Some context to set the scene: @prepaid_africa Not exactly! Most Nigerians have a daily budget of between N1000 – N2000. This covers recharge, transportation & feeding.

— Area_Boy (@EUgwu) June 23, 2015


Nigerian blue collar workers

We can see the similarities between students and blue collar workers – both on limited budgets – the majority of weekly recharges for both fall in the lowest bracket of 100 to 500 Naira, and the preferred voucher amount is 200 Naira. Most people are not topping up their mobile airtime everyday, though students are spending a bit more.


Nigerian White Collar Professionals

Professionals are definitely adding more value to their airtime every week, and broadly speaking the preference for recharge amounts is equally split between higher and lower values.


Nigerian Market Traders

Here we can see an interesting difference after I convert these numbers into a percentage of mobile owners – 52 is the total.

20= 38%  10 = 19% 17 = 33% 4 = 8% and 1 = 2% – grossly rounded & totalling 100%.

Without converting, the first thing we note is that nobody purchases recharge denomination above 200 naira and the preference is more or less equally split between the lowest two values. Even the blue collar workers had some who purchased 400 naira of airtime, while a similar percentage of students purchased amounts other than 100 or 200.

We find that unlike the other segments who preferred these smaller denominations, more traders spent more each week. That is, they tended to very frequently top up with small amounts. While their total weekly purchasing pattern in terms of weekly recharge resembles the white collar professionals, their choice of denomination is significantly an outlier.

What does this mean? Low margins, high volumes

Even with all the disclaimers on sample size, consistency and quality of the data gathered, one can see quite clearly the cash flow patterns of the traders in the informal market. Small denominations, high frequency.

While every trader in the market may not be doing the same volume of business, there’s enough of a suggestion that there is a dynamic aspect of trade. Its made visible by the not insignificant number of traders whose total weekly expenditure on airtime recharge is 10 or 20 times the denomination value of the recharge coupon. They are most definitely topping up more than once a day. And on the phone, “doing business”.

Trade – in the informal economy sense of the word, not the formal container ships of industrialized goods – happens by negotiation, haggling, bargaining, brokering, mediating and communicating. Biashara, in this sense is a better word, for the marketplace as a bazaar, not a cathedral. Markets are conversations, to unearth a cliche, and the pattern of mobile phone use, coupled with the pattern of recharge, is an indicator of informal trade.

The implications of these surveys validating a hypothesis are immensely useful for design planning for the informal market.


Part 3: Synthesis and Insights from original research on rural economic behaviour

One can conclude from synthesizing the data collected across the geographies and the range of “BoP” income levels that rural households demonstrated similar patterns of behaviour in their management of household expenses on irregular income streams. These are:

  • the rapid conversion of cash into tangible assets such as goods or livestock,
  • the  subsequent storage of wealth in this form,
  • the ability to conduct cashless transactions by mechanisms both simple and sophisticated
  • shared or cooperative financial tools such as investments, loans, purchases and savings
  • the use of multiple resources allocated by cost and usage
  • knowledge and experience of seasonal ebb and flow influencing cash flow management

The irregularity of cash flow or income over time in the households studied can be said to be a combination of the known – such as the ebb and flow of income over the course of the year, either directly due to the natural seasons or due to other unnatural but predictable factors such as Christmas or vacations; and the unknown –  either the truly unpredictable such as a natural disaster or the simply random, such as not knowing how many customers will make a purchase on any given day.

The known component or the “reasonably predictable through experience”, is less a matter of the actual amount of income earned and more about knowing when to expect peaks and lows in cash flow. This element of seasonality would be a critical component of knowledge pertaining to a particular region or market for BoP ventures seeking to create value through successful introductions of products or services.

For example, in the rural region of The Philippines, January to approximately April or May (or until the rains begin) is considered the annual “summer” or “dry” season – unless a farm is very lucky to have access to sufficient water for rice growing regardless of rain, the farmers can only start planting when the rains arrive and are dependent on it for their second harvest as well. So overall, whether its tiny sari-sari1 stores supplying everyday essentials, snacks and cold drinks or some other business – even those selling necessities like food, all consider this a lean period.

Those who earn daily wages  helping farmers plant the rice have little work, farmers live on their stockpiled rice, everyone tends to spend less but along with the rains all of this changes and the pattern of spending increases until the annual Christmas peak. For some, wholly dependent on what they can earn locally (receiving no remittances from relatives abroad) this can mean a difference of 100% in their weekly earnings between the “wet” and the “dry” season.

The Indians and the Malawians were influenced in similar ways, only the actual timings varied due to geography. Whatever the reasons in any particular region, when evaluating the purchasing power of those who manage with irregular and unpredictable income, the first question to ask is if there are any known patterns of ebb and flow in their cash flow.

It is the unknown component that creates the unpredictable volatility that those on irregular income streams must deal with in order to manage their household expenses with any degree of control. The behaviours observed listed above, taken together, can be summarized to state that each household managed what could be called a “portfolio of investments” that acted as deposits maturing over time.

They either maintained multiple sources of income simultaneously since available cash was often converted into these investments, spreading the risk of any one source failing when needed or stored their wealth accordingly.  Maximizing available resources based on their cost and intended usage along with the tendency towards minimizing the need for cash based transactions all worked together  to smoothen the volatility of the household‘s income.

For example, one family in Malawi reared pigs for sales (or food in emergencies), grew vegetables and maize for their own needs, distilled wine from sugar cane for cash sales and also kept bees with a cooperative for annual harvest of honey. Cash was thus available in varying amounts from a variety of sources at different points of time.

In the Philippines, an extended household living together in one compound pooled their resources from a kitchen garden, stored fuel in the form of bamboo and dried coconut husk, kept chickens and occasionally a pig, as well managed on the small amounts of cash earned daily through running at small sari-sari store on the premises.

While in the Indian village, even the silversmith who made ornaments only during the harvest peak, used his metalworking skills and workshop the rest of the year to make doors, windows and grillwork.

This portfolio management approach to household expenses* implies the manipulation of their span of control over elements of time such as periodicity and frequency as well as currency, i.e. cash or goods, in order to decrease the volatility of their cash flow, improve their ability to plan and while decreasing the variance between expenses and income.

Across the board, the particular characteristic that most stood out during conversations with the rural populace in India and The Philippines, echoing  prior experience in the field elsewhere, was their undeniable pride in their degree of self reliance, and thus, their level of independence from the formal or cash based economy.

Over and over, people would proudly point to assets like firewood, livestock, kitchen gardens etc and emphasize that these resources were ‘free’ and didn’t need to be purchased for cash, often in the same breath pointing out how everything needed to be bought if you lived in the city. Whether it was a nanny goat kept just to provide the daily cup of milk for morning tea or an extra sack of rice held back from the harvest sales, there was a distinct sense of achievement for every penny that didn’t have to be spent.

This trait of minimizing the need for actual cash money also cropped up in other patterns of behaviour including the storage of wealth in the form of ‘kind’ or ‘goods’ (that could be liquidated when and if required); cashless transactions within the community, from the simple to the sophisticated; and the rapid conversion of surplus cash into goods or ‘kind’ (livestock, for example, as investment or planned savings in the form of silver or bricks for a future house).

Expensive resources that required cash outlays such as fuel – diesel for irrigation pumps; liquid petroleum gas cylinders for cooking; or airtime minutes purchased on prepaid plans for the ubiquitous mobile phone, would be stretched out for as long as possible before the need for replenishment. For example, a common behaviour was the choice of cheaper or ’free’ fuel such as firewood or dried cow dung for cooking food which took a long time to cook such as beans or stews, saving the use of the more expensive gas stove for fast cooking items.

All of these behaviours, taken together, imply a challenge for businesses seeking to serve rural populations effectively since their relative lack of liquidity places them in a challenging position as future customers. Conventional business development methods include the use of market research to evaluate the disposable income or purchasing power of the target audience. When considering rural BoP households, these tools may not supply any meaningful data, skewing the perceived income levels or earnings of those studied.

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

1. Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.

2. Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.

3. Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of  periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.


Broadly speaking, there was evidence of far more sophisticated cash flow management than has either been expected or assumed among the rural BoP households in the sample pool. In fact, one future task would be to parse out whether the terms ‘irregular’ or ‘unpredictable’ can be be applied. Certainly, income was not as predictable and regular as a salary, but on the other hand, neither were they totally random and unknown. At this point, it seems far more accurate to say that the rural BoP households do not manage their expenses on a “fixed amount arriving on a known day or date”.

Also to be reconsidered is whether those in the rural communities in developing countries should simply be lumped together with their urban brethren as an undifferentiated mass called “the BoP” or “the poor” – for one, living on $2 a day has an entirely different meaning where much of the hyper local economy may not even be based on cash transactions, or else, few daily requirements need to be purchased.

If we’re to seriously evaluate business development for BoP ventures, then a far more nuanced understanding of local culture, buyer behaviour and segmentation of these emerging consumer markets is required.

* Given the similiarities in findings, it should be noted that these insights emerged from a workshop conducted in Helsinki, Finland in April 2009, prior to the release of the now famous book, Portfolios of the Poor.

The underlying principle of flexibility

The Economist writes about the proliferation of mobile money across the African continent, high lighting some aspects of its rapid adoption by the local population – 96% of whom are on prepaid or pay as you go mobile subscriptions.  A new survey of global financial habits by the Gates Foundation, the World Bank and Gallup World Poll found, among other things, that:

Most mobile-phone transactions are tiny. Market traders, for example, use mobile phones to pay peasant farmers for a single bag of cassava or maize-meal. One of the most successful mobile-phone products in Kenya is a SIM card costing just a few cents—but that is all people need for the occasional transaction.

In the informal economy, where the need to control one’s time (duration, frequency and periodicity) and money (cash or kind) was paramount, and where already the vast majority of mobile phone users are on prepaid accounts, these mobile money transfer systems offer the flexibility that those on irregular income streams need, in order to manage their finances effectively.  No credit checks or payslips or reams of banking paperwork involved.

I saw this informality in the social measurements used in the market – rough approximations of quantity and estimates of weight. I wondered in a different post what this willingness to be flexible might imply – where neither the buyer nor the seller were concerned about exact weights and measures, allowing a communal decision on fair price to emerge instead. Now it strikes me that the underlying principle of flexibility is what makes all of these models work.

Convenience as a service

Shredded cabbage for sale, Wote, Kenya 3rd February 2012

Convenience can mean different things to the household consumer, depending on their location. In urban Chicago, its stocking up the freezer and pantry with a trip to a megastore like Costco while in Singapore it might be the ubiquitous neighbourhood hawker stand where rice, meat, two veg can be had for as little as $2.50 per person. Here in the mostly rural, arid Makueni district of Kenya where the concept of leftovers is moot and only bars and restaurants tend to have a refrigerator, convenience means stopping by the cabbage lady for just enough for tonight’s meal.

Kerosene sales, Wote, Kenya 4th Feb 2012

Purchasing patterns observed previously among those on irregular income streams have been clustered into  four major categories:
1. Prepaid or pay as you go
2. Bulk purchases of non perishables
3. Sachetization or as its called here in Kenya, kadogo
4. On demand, for immediate use

The shredded cabbage, being sold by weight or “amount” (half a cabbage or quarter) is a clear example of the last pattern and common across the world while the way kerosene is being sold could be said to be closer to a ‘sachet’ or small purchase as it tends not to be a daily or on demand purchase.

Interestingly, here I saw bulk purchasing for firewood or charcoal rather than foodgrains since most families have some land where they grow maize.  The maize is first and foremost for household use and only the surplus is sold.

So why have I called this ‘convenience as a service’?

There is a premium one is paying for the convenience – whether its the shredding being done for you or the difference in price of kerosene between the town and the village.  Someone has saved you the time and effort thus it costs money. There’s an entire economy around water and its supply chain that I’ll be taking a closer look in a forthcoming post.

Patterns of behaviour: trade offs made in time and money

This insight emerged from a conversation we had yesterday with Jane Mbithe, who manages EasySurf cyber  at the Yaya Centre. Reflecting on patterns of behaviour among her high net worth customers who often already possessed the latest laptops and broadband modems, she said it boiled down to the elements of time and money with respect to certain tasks at hand.

The broadband modem is fine for regular browsing (within reason, as I’m discovering, having recently ‘spent’ 35 MB just to find one news article in a regular Google search – majority of websites are far too big and heavy for no discernible reason) but when the time came to download a large document received in email or some other such data heavy activity, the trade off made between cost of 15 minutes at the Ksh 3/min high speed cyber’s facilities to complete this task versus taking far longer (consuming both available data and thus, airtime) using the slower modem or other connection was a no brainer.

I found it fascinating to note this pattern of using the more expensive source that was faster for certain activities being reflected in online activities as I’ve seen this ‘cost/benefit analysis’ manifested around the developing world in kitchens where the choice of cooking fuel is based on the intended task as well. (more expensive LPG to quickly fry an egg versus cheaper charcoal to cook beans slowly). The underlying factor is the motivation to maximize the return on investment in a prepaid source of [what may be required] – whether its electricity in The Philippines or South Africa (where rural stores stock LPG powered refrigerators) or the ubiquitous airtime minutes available on every mobile phone.

In this context, the high speed cyber cafe, though expensive, is analogous to the more expensive but faster LPG versus the slower, cheaper broadband modem (charcoal equivalent).

This observation implies that the purchasing patterns and decision making behaviours already identified have influence regardless of the level of technology or advanced ‘modern’ nature of the purchase, and thus, purchasing power.